Among the duties of a retirement plan fiduciary is the duty to monitor the administration of the plan and to assure that policies and procedures are in place to minimize the risk of errors and deficiencies. While monitoring is important in all retirement plans, it is especially important in defined contribution plans, like 401(k) and profit sharing plans, that permit participant investment direction of accounts. Most often, this oversight is exercised through periodic meetings involving representatives of the plan sponsor, the internal plan fiduciaries (e.g., officers or employees who are serving as members of the plan administrative committee or as trustee), legal counsel, and the plan’s investment advisor and other service providers (e.g., the third party administrator, CPA, and investment record keeper). In this Benefits Commentary1, we will summarize best practices for conducting periodic reviews of defined contribution plans that permit participant investment direction from investment options selected by the plan sponsor or other plan fiduciary.
- Due Diligence
The first order of business is to delegate responsibility for keeping minutes of the meeting(s) and compiling the documentation to be maintained in the fiduciary minute book or due diligence file. Under applicable law, plan fiduciaries are to be judged not on the outcome but rather whether they conducted an appropriate investigation and took action or made decisions based on the best information available at that time. In other words, plan fiduciaries are not guarantors and are to be judged on whether they engaged in a prudent process.
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